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NZ Dollar Tumbles After Emergency Interest Rate Cut from RBNZ

March 16, 2020 at 2:30 by Vladimir Vyun

Rolled bills on the plain banknotesThe US Federal Reserve was not the only central bank to make a surprise interest rate cut at the start of the week. The Reserve Bank of New Zealand also announced an emergency cut overnight. Unsurprisingly, the New Zealand dollar reacted negatively to the announcement, opening sharply lower at the start of trading. While the kiwi has trimmed losses by now, it is still trading below the opening level against other currencies, even the US dollar.

The RBNZ announced an emergency interest rate cut today, reducing its benchmark interest rate from 1% to 0.25%. The decision was unanimous. As one can expect, the RBNZ had the same reason for the cut was as the Fed — the damage that the coronavirus pandemic will likely cause to the economy. The statement said:

The negative economic implications of the COVID-19 virus continue to rise warranting further monetary stimulus.

Elaborating about the negative impact on the New Zealand economy, the statement further said:

The negative impact on the New Zealand economy is, and will continue to be, significant. Demand for New Zealand’s goods and services will be constrained, as will domestic production. Spending and investment will be subdued for an extended period while the responses to the COVID-19 virus evolve.

The central bank warned that it will not review interest rates at the scheduled monetary policy meeting on March 25. As for plans for monetary policy in the future, policymakers agreed that in case of necessity for additional stimulus asset purchases will be preferable to further rate cuts.

NZD/USD traded at about 0.6033 as of GMT today after closing at 0.6063 on Friday, opening at 0.6094 today, and falling to the daily low of 0.5983. GBP/NZD closed at 2.0232 on Friday, opened at 2.0319 on Monday, and rallied to the high of 2.0570 before pulling back to 2.0391. NZD/JPY was at 64.80 after closing at 65.47 on Friday, opening at 65.26 on Monday, and touching the session low of 63.54.

If you have any questions, comments, or opinions regarding the New Zealand Dollar, feel free to post them using the commentary form below.

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